Copper 2016 Outlook: Could Supply Cuts Balance Demand Slowdown?



Copper 2016 outlook

Copper prices fell by more than a quarter in 2015. Copper has been on a downtrend after hitting $10,000 per metric ton in the beginning of 2011. LME (London Metals Exchange) copper prices have fallen in every year since 2011. Only in 2012 did they manage to hold steady, closing roughly flat as compared to the previous year.

So, could the downtrend in copper prices continue in 2016? In this part of the series, we’ll look at copper’s 2016 outlook. We’ll see the key factors that could drive copper in 2016.

Article continues below advertisement

Supply cuts versus demand slowdown

Copper’s 2016 outlook could depend on the prevailing demand and supply situation. On the demand side, all eyes should be on China, which accounts for ~45% of global copper consumption. China’s metal appetite has been driving global miners such as BHP Billiton (BHP) and Rio Tinto (RIO) for more than a decade.

On the supply side, markets should be looking at the impact of supply cuts announced by copper producers including Glencore (GLNCY) and Freeport-McMoRan (FCX). In the coming parts of this series, we’ll explore more on how the demand-supply equation could shape up in 2016.

Global sentiments

Global sentiments should also impact copper prices. Copper’s 2016 outlook could depend on the global economic activity. We might see a spillover from geopolitical tensions onto risk assets. As investors flee risk assets in their flight for security, asset classes such as commodities could see downward price action.

Also, the currency war initiated by China at the beginning of 2016 could lead to a stronger US dollar (UUP). Copper, like most other commodities, has a negative correlation with the greenback. The graph above shows movement in LME copper prices versus the dollar. A further rise in the dollar could lead to more weakness in copper prices.

In the next part, we’ll look at the outlook for China’s copper demand.


More From Market Realist